Thank COVID-19 for ‘phantom space’ in many office buildings
Phantom space haunts office buildings for lease in Oklahoma City.
It makes it hard to know exactly how much space is being used now and how much will be needed later, especially with white-collar jobs gone hybrid between home and the workplace. Thanks, COVID-19.
But first, there are a couple of different definitions for “phantom space.”
One has to do with the intricate differences between usable space, rentable space, and who pays for what — landlord or tenant — for common areas, taxes, and hey! Don’t get spooked. Get back here.
I’m using this simpler definition, from a real estate glossary online:
Phantom space: “Generally refers to space that is under lease to a tenant but not presently occupied. Usually created when a tenant consolidates or reduces operations in space it leases prior to the end of its lease term.”
This is key: “The vacant but leased
space may or may not be formally marketed on a sublet basis or counted among a market’s vacancy.”
Here’s another take on “phantom space,” also called “phantom vacancy,” from the International Facility Management Association:
“Space that a company occupies, but does not use.” Simple enough. But there’s more:
“This space is at risk for not being included in a lease renewal. Asset managers should be aware of phantom space and take it into account when projecting the future economics of the market.”
Phantom sightings are being reported in office buildings all over the country.
It’s that damned COVID-19 — and surely I can say “damned” COVID-19. It’s not profanity. It’s prayer: I want to see it damned.
It has companies that lease space, and many people who work in offices, all discombobulated, trying to figure out how much space they need now that the white-collar world has changed.
It has, you know. For good. Office work and office space will never go all the way back to the way things were before the spring of 2020. Some things are coming back, but not all. (Same goes for church, by the way, but that’s another story.)
Zoom, Microsoft Teams, Slack and the like may not be used as much as at the depths of the pandemic last year. But they’re good tools for inter-office communication and meetings — and intra-office.
Awhile back on a rare trip to the newsroom, I saw one editor at his desk at his computer, and another editor at a desk on a computer, both of them in a Teams meeting with other people at other desks, or at home, in other locales. And cities and states, probably.
So, in offices all over, executives are estimating, guesstimating, projecting, reading tea leaves, trying to figure out how much space they really need, and when.
Some may be having seances to get advice from Those Who Successfully Rode Waves of Chaos Before. Kidding! But have you seen the meme about how virtual meetings are like modern seances? “Elizabeth? Are you here?”
“Make a sound if you can hear us!”
“Is anyone else with you?” “We can’t see you. Can you hear us?”
If there’s a meme about it, there has to be some truth to it. One truth is it’s kind of scary out there for anyone insisting on certainty. Uncertainty is all the rage nowadays.
Price Edwards & Co. acknowledged as much in its midyear office market summary.
“We would suspect that the actual repercussions of the effects of the COVID-19 virus are still relatively unknown,” according to the report, prepared by broker Tre Dupuy. “Multiple national sources have cited record increases in sublease space availability nationwide.”
Gobs of space are sitting out there dark.
“Simply put there is a large amount of space currently under lease not being reported as vacant but going unused,” Dupuy reported. “If companies are unsuccessful in their subleasing attempts before their lease expiration, they will make the necessary decisions to right-size their space at the time of renegotiating their lease, contributing to higher vacancy rates across the Oklahoma City office market.”
That doesn’t sound good. Nonetheless, Price Edwards said it remains “cautiously optimistic.”
Overall vacancy in the market decreased from 24.8% at the start of 2021 to 22.9% at midyear, and overall rental rates ticked up slightly from $19.53 to $19.59 per square foot per year, the firm reported. See the report for details at priceedwards.com.
Oil and natural prices have been climbing all year, and that’s always a plus for Oklahoma City office usage, although probably not as much as in years past because of tech innovation. That’s a known unknown. It’s the unknown unknowns that give pause.
“2021 began with the issuance of COVID-19 vaccines, which restored confidence in returning to the workplace,” the firm reported. “However, it seems with new variants in the virus, the second half of 2021 will continue to have companies evaluate their office needs while trying to define what the ‘new normal’ means to them.”
Good luck with that “new normal” thing. It’s the biggest unknown unknown of all.